China’s wealth managers join forces to tap family office growth

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Chinese wealth managers are increasingly teaming up to penetrate the top-end family office business sector in China in order to serve the burgeoning number of super rich, say industry insiders.

More wealth managing institutions, including banks, trusts and wealth management firms, are making the foray into the family office business at a time when it is still in the early stages in China.

With a long history in the US and Europe, family offices are organisations run on behalf of a high net worth family with the goal of wealth preservation and transferring wealth to future generations. Typically, they are composed of private bankers, asset managers and lawyers who take care of investments, taxes, trusts and legal matters.

Unlike in overseas markets – where a single family office, or those only serving a single wealthy family, are more common – in China there could be a larger number of multifamily offices, or organisations serving a number of ultra high net worth families, according to Wu Fei, an associate professor at the Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University.

“We’ve seen a growing trend where local family offices are outsourcing their non-core business, or choosing to join hands with professional services providers in specific segments,” said Wu.

We’ve seen a growing trend where local family offices are outsourcing their non-core business, or choosing to join hands with professional services providers in specific segments

Wu Fei, Shanghai Advanced Institute of Finance

He said it could be too demanding and costly for a single institution to offer all types of services required by a high net worth family by their own staff. In these cases, the work can be outsourced in cooperation with other firms, including tax planning, family education and charity contributions.

Financial institutions sometimes even need to team up with niche service providers for tailor-made services, such as booking a journey on a private jet, visiting Ivy League universities in the United States, and obtaining VIP tickets for a pop-star concert.

More than half of family offices on the mainland were set up in 2015 and 2016 to tap the emerging market, according to a study led by Wu in cooperation with consultancy FOTT.

Most of their assets under management are worth less than 10 billion yuan (US$1.5 billion), according to the study, which surveyed 35 multifamily offices in China.

Family trusts, a popular arrangement for wealth preservation and inheritance, could be a common service, or first step, offered by businesses aiming to penetrate the family office market, though not all are required to include the service.

In China, only licensed firms can operate as trustees, driving wealth management businesses to team up with trust firms. Beijing-based CreditEase Wealth Management has joined hands with five trust firms both onshore and offshore, including mainland China based Chang’an Trust.

Through the partnerships, CreditEase makes use of the trust structure to offer customised wealth management solutions, said Dillon Hale, head of family office for CreditEase and a member of its global asset allocation committee.

“The business shows good signs of growth since operations started in late 2015, with 50 cases in the pipeline,” he said, adding that he expects projects to grow 50 per cent in value each year in next three years before ultimately expanding it to a full service family office in the long run.

The proliferation in number of super-rich is luring financial institutions and professional services providers like accountants and lawyers into the family office sector.

In 2016, China was home to 1.58 million high net worth individuals who have at least 10 million yuan (US$1.5 million) in investable assets, and the number is expected to grow 18 per cent to 1.87 million this year, according to a joint report from Bain and China Merchants Bank.

Their combined investable assets of 49 trillion yuan in 2016 are projected to rise to 58 trillion yuan this year.